A $200,000 a year salary is downright middle class if you're living in a big city like San Francisco, Los Angeles, Seattle, New York, Boston, Washington D.C., or San Diego.
Why? Here are the reasons:
- The median house price in San Francisco is $1.8M. Banks don’t lend if a house is worth more than 5X your income after a 20% downpayment. You’ll need to save for a while or join forces with another six figure income earner.
- Private school tuition is $20,000 – $50,000 a year per kid. And this is after tax dollars. Having more than two kids is prohibitive without financial aid if you want to send them to private school. But public schools aren’t so bad, IF you win the lottery and get into a top rated school.
- Typical salary for 22 year olds joining tech companies is $100,000 – $150,000. So if you are over 35 and still making only $200,000, you are definitely middle class because you are competing against these folks who will be making $300,000+ when they are in their 30s and 40s.
There are people trying to survive in big cities making $400,000+. Yet, President Biden wants to takes them even more and raise the capital gains tax further. Perhaps working so much is not worth it.
Just Getting By On A $200,000 Household Income
Here is a detailed budget from a real couple with one child living in expensive San Francisco. After one parent contributes to a 401(k) since the other parent is a stay at home mom, they are left with only about $5,700 in cash flow after all expenses.
The cost of raising a child in a big city is the biggest variable. This couple only spends $2,000 a month for help. But if you want to send them to a preschool in a place like Manhattan, we're talking $3,000 – $4,000 a month.
See: How To Make $200,000 A Year And Not Feel Rich
Need To Make $500,000+
Only after you make about $500,000 – $600,000 a year will you start feeling like you’re pulling away. But even then, there are some people who make $500,000 a year and who still can’t escape the rate race either!
Here's the budget for a couple with two children making $500,000 living in New York City. As you can see from the chart, the money goes rather quickly without financial discipline.
Yes, they are living a very comfortable life, but they will still have to work for a couple decades before they can retire given their high expenses.
After living in SF since 2001, I’m planning on finally relocating to Honolulu, Hawaii, where my parents currently reside.
Housing is about 30% cheaper and the lifestyle is great. It’s too expensive and crowded in San Francisco now. Further, it's gotten very homogenous.
If you want to feel upper-middle-class or feel like you are getting ahead in the San Francisco Bay Area, you need to own your home and make at least $300,000 a year.
Only have making $300,000 a year for a household of four or less will you feel like you are making some headway towards financial freedom. You should be able to max out your pre-tax retirement accounts and save another $30,000 or more a year in after-tax savings.
Once you've reached your financial target, I suggest moving to a lower cost area of the country. America is big. Go enjoy it!
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About the Author: Sam worked in investing banking at Goldman Sachs and Credit Suisse for 13 years. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income. He spends time playing tennis, taking care of his family, and writing online to help others achieve financial freedom too.